Biopharmas Cooling to Licensing Deals as Patent Cliff Fears Ease

After all but waxing rhapsodic in recent years about the value of partnerships and collaborations, biopharma giants are showing more caution about doing licensing deals, according to a just-released state-of-industry report.

According to Biotech and Pharma: 2012 Year in Review, published by EvaluatePharma’s publishing arm EP Vantage, big biopharma spent $20.9 billion on licensing deals in 2012, a 19% drop from 2011. The number of products licensed also fell significantly, to 759 in 2012 from 1,037 a year earlier.

A possible reason, the report posited, was that biopharma giants had less of a need to plug holes in pipelines through increased licensing activity, as companies slowly navigated the “patent cliff” expirations of several brand-name drugs.

“The decline we saw in licensing deals during 2012 could mean rather than the old scatter gun approach of licensing lots of products and banking on certain attrition rates, companies will be looking to do fewer, more considered deals,” Lisa Urquhart, editor of EP Vantage and author of the study, told GEN.

“What this might mean is fewer deals struck at the riskier early stages of development unless they are in a hot area, such as HepC, cutting the number of deals. The value of deals might also fall as companies try to mitigate their risk exposure by spending less on up-front fees and back-end loading deals,” Urquhart added.

Also declining last year were M&A deals, which fell to $42.6 billion in 180 deals, or 24% below 2011’s roughly $56 billion in 196 deals. The 2011 figure includes Sanofi’s $20.1 billion acquisition of Genzyme.

One area where licensing and M&A activity could increase this year, Urquhart said, is orphan drugs, whose development costs are lower than for many other disease categories, and whose chances of approval are higher and reimbursement, easier: “Watch out for more activity in this area.”

Biopharma is unlikely in 2013 to see the convulsive megamergers that rocked the industry after the 2007–09 recession. Other than AstraZeneca, most biopharma giants are already past the patent cliff, reducing their need to buy pipelines. As a result, growth among big biopharmas is expected to be pretty flat over the next five years, Urquhart said.

“Mega-mergers are not a quick fix for R&D productivity and a lot of companies—including Abbott, Pfizer, and Johnson & Johnson—are looking to slim down their operations to make them more efficient,” Urquhart added. “A lot of companies will be looking at controlling costs and being a lot more strategic when considering licensing or spending on R&D, which could mean smaller more heavily back-ended licensing deals and maybe more smaller less-risky acquisitions.”

While fewer licensing deals are likely for smaller drug developers, they have several positives to anticipate in 2013. One is the prospect of continued gains by biotech stocks, which enhances the industry’s attractiveness to investors. That should lead to a short-term increase in venture capital investment, which dried up during the recession, Urquhart said.

Also encouraging to investors, Urquhart said, was FDA’s increased dialogue with industry about what it wants to see in clinical trials, reflected in more early meetings with companies. FDA approved 43 novel biologic or small molecule agents in 2012, up from 35 in 2011 and 26 in 2010: “Other than external macroeconomic factors, the only thing that might push back stock prices would be the failure of the one of the big-ticket drugs up for approval this year.”

Even that is less likely, she added; FDA on Wednesday approved Biogen Idec’s oral MS drug Tecfidera.